On January 1, Baruti Company acquired 4,000 shares of Biltmore Companys common stock at a price of
Question:
On January 1, Baruti Company acquired 4,000 shares of Biltmore Company’s common stock at a price of $9 per share. Baruti did so to establish a long-term working relationship with Biltmore Company. At December 31, Biltmore reported net income of $30,000 and paid a $0.50 cash dividend on each of its 16,000 common shares. On that same date, the market value of Biltmore common stock was $11 per share.
(a) Which accounting method should be used to account for this investment? Why?
(b) Record all entries that should be made to the accounting system during the year as a result of this investment.
(c) At what amount should the investment be reported on Baruti’s end-of-year balance sheet? Show how you arrived at your solution.
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
a Equity methodThis investment was large enough to acquire significant ...View the full answer
Financial Accounting Information For Decisions
ISBN: 978-0324672701
6th Edition
Authors: Robert w Ingram, Thomas L Albright
